Glencore says global demand robust enough to soak up U.S. oil

LONDON (Reuters) - U.S. oil exports are pouring into the market at a record pace, but the world’s second largest crude trader Glencore believes demand will be strong enough to absorb the volumes along with those from competitors in the North Sea and West Africa, thanks in part to China. U.S. oil exports hit an all-time high near 2 million barrels per day (bpd) last month, equal to the daily output of the entire North Sea, joining the fight for market share from Poland to India, but Glencore’s head of oil trading Alex Beard says demand for crude is strong enough to take the extra barrels without excessive pain.

The logo of commodities trader Glencore is pictured in front of the company's headquarters in Baar, Switzerland, July 18, 2017. REUTERS/Arnd Wiegmann

“I think the market is able to absorb that 2 million bpd of U.S. exports easily,” Beard told the Reuters Global Commodities Summit. “I don’t think there are many losers out there.”

Since restrictions on exports were lifted in late 2015, U.S. crude production has risen by 4 percent and exports have flowed to refineries all over the world.

Sky-high global inventories have started to drain in spite of this rising supply, but concern has persisted over about how this additional crude could edge out other producers and weigh on prices.

A TASTE FOR U.S. CRUDE

North Sea and West African exports to China have hit record highs this year, but many of these buyers are now sampling U.S. grades for the first time. China bought its first U.S. oil cargo in January, and a steady stream of cargoes has followed the first. This has knocked prices for physical barrels of Brent crude oil, which had hit their highest in nearly two years in September, to two-month lows. [reut.rs/2yg2Rxo][ nL2N1IK03Z] Still, Beard said China will need at least another 100 million barrels of oil for its strategic petroleum reserves in 2018, in addition to what it requires to feed its continually rising refinery runs. "It's been a question of the rest of the world pulling crude and products out of the United States, rather than the situation of a few years ago, at least on crude, when stocks were high and the U.S. felt compelled to export," Beard said.

Now that the U.S. has moved away from being an “energy island”, Beard said he expected that trend to continue.

Mining major Glencore expects to trade a record 6 million bpd of oil in 2017, making it the second-largest independent trader of crude oil behind rival Vitol, and has been one of the biggest shippers of North Sea crude to China this year, according to traders and Reuters data.

Beard said he expects global oil demand to expand by up to around 1.2 million bpd next year, compared with this year’s rate of around 1.5 million bpd, but this should be enough to keep the market from tipping back into excess.

“Demand is definitely set to stay strong in China for crude,” he said, adding that continued U.S. North Sea and West African flows were “set to be a feature of the market as a whole.”